1. Charge Cap
From April 2015 it will not be possible have been Auto Enrolled (AE) into pension schemes were the charges (although see below) for the default options are higher than a legally specified maximum amount.
This maximum amount will be of the order of 0.75% of your fund or one of six other broadly equivalent charging models.
This should mean that pension scheme costs will come down although, as many modern schemes already have charges lower than this, there is also a chance that costs, for those modern schemes, will not change or could even go up!
2. Charges – what’s in and what’s out
Not all of the costs of running a pension scheme are included within the cap. This means that the total impact of charges could still be more than the maximum amount.
The main costs not included in the cap are “transaction costs”. These are the costs of buying and selling investment assets.
Those running your pension scheme will, however, have a duty to make sure that any additional costs represent value for money.
3. Is their a victim?
As the cap limits the amount a pension scheme can charge, it also limits the amount those running your pension scheme can spend buying services.
This could mean that they will not be able to automatically provide some of the “value added” services or complex investment options they have done in the past.
They will be able to provide value added services if you consent to paying extra for them.
Historically your employer has been able to permit a financial advisor to take a commission (or payment) from your pension pot as a way of paying for the advice they have given you or your employer.
From April 2016 this will no longer be allowed. The only payment that a financial advisor will be able to take from your pot will be one you agree with them in relation to advice they have given you.
5. Beefed up rules for those running your pension scheme
Those running your pension scheme are going to be subject to a number of new rules. These rules are designed to make sure they do a thorough job of looking after your interests.
One key new rule for them will be a requirement that they assess whether you are getting good value for the charges you are paying. They will have to publically disclose the results of this assessment.
This should increase competition amongst the providers of pension schemes: possible driving costs down further and or the quality of pension schemes up.